Many people are not aware of the different ways in which they can save tax. Remember that all this can be done in a legal manner without breaking any guidelines issued by the tax department. However, you should provide proper proof fxor all the expenses that are eligible for tax exemption. This is done to safeguard the interest of everyone and so that people do not misuse the provisions given for tax exemption. In this regard, you can make suitable re-arrangements to your salary and get tax exemption for many aspects in your salary. In the same manner, most working professionals can get tax benefits when they have a driver for their vehicle. Apart from that, even buying a home by taking home loan can provide you some tax benefits. You can get tax exemption for donations made to various organizations and you should discuss such things before spending your money.
Why should you save tax?
The answer is very simple and this will give you added benefits for your future. Remember that every penny you invest for tax saving will add to your earnings and you can get to spend them as per your wish on various things. There is no additional advantage you get by paying more tax than what is required for your income. You can approach a professional chartered accountant and explain all your income and expenses in a detailed manner. They will ask you to submit the relevant documents to support your claims for expenses and income. After this, you will be able to get the best plan to save taxes in a legal manner. You will be surprised to know that there are many provisions to save tax and you need to understand them carefully by consulting a professional adviser. In this regard, let us look into some of the best ways to save tax in our country.
Home loan is eligible for tax benefits
- If you are planning to buy a home, make sure that you take a home loan from a reputed financial institution so that you can get to save some taxes on your earnings. Many people with lump sum cash also choose home loans as this will improve their credit rating and it can also provide tax benefits. You can plan to invest your lump sum money in some long term investment and choose to get home loan from banks.
- This is one of the best ways to save tax legally and you can get maximum benefits by choosing this method. When you begin to repay the loan for your home, you can get tax exemption under different sections. Remember that some part of the EMI will go towards clearing the interest amount and some part will go towards clearing the principal amount.
- This usually varies every month as the principal amount keeps reducing in most cases. For this reason, you should always calculate the amount of home loan you have cleared throughout the year and note down the principal amount and interest amount paid towards the home loan. This will help you to get clear idea about tax exemption based on the below mentioned guidelines.
- In case of interest amount paid towards home loan, the tax exemption is given under Section 24 and you can get up to 2 lakhs. This can be a huge reward at the end of the year and you will save close to twenty thousand rupees on your taxes only by using this option. Apart from that, there are additional benefits offered for first time home buyers under Section 80 EE. This is done to encourage the real estate sector in the country and first time home buyers are also encouraged with such benefits. In this regard, you can get additional benefits of 1 lakh along with the regular exemption when you are a first time home buyer in the market.
- In case of principal amount paid for the home loan, you will be able to get exemption of nearly 1.5 lakh and this is offered under Section 80 C. In this way, you can combine both the exemptions offered for principal and interest paid on home loan and process the calculation. You will get a rough idea about how much taxes you can save using this method.
- However, you should have taken loan from a reputed financial institution and the hand loan you take from your friends and family will not be counted as home loan. For this reason, you should always prefer leading banks for home loans so that you can submit all the proof about loan repayment and get the eligible tax benefits in future.
- You should also understand that you will be paying home loan for an extended duration of many years and this can provide sufficient tax benefits for a long duration. This is the best ways to save tax suited for salaried individuals as they can get to save money on taxes for many years in this manner.
Buying health insurance can save you tax
- When you want to choose the best ways to save tax on your earnings, you can go for health insurance cover for your family. You can get combined coverage for your entire family and this can provide good security whenever you need medical treatment in future. Remember that health expenses can be very huge if you do not have proper insurance and you will lose lot of money without good planning.
- Under Section 80 D, you will be eligible for tax exemption of up to 20000 Rs when you choose health coverage from leading insurance providers in the market. The exemption limit is extended to nearly 30000 Rs for senior citizens. This is to encourage people to have good health cover and it works in the interest of everyone involved in the deal.
- Given the situation, you can plan your health cover policy accordingly and get to save taxes. If you and your spouse are both working professionals and paying taxes, you can go for separate health cover when you want to get tax benefits for both the people. In the same manner, when you have your parent who is a senior citizen and paying taxes, you can go for separate health cover to get additional tax benefits.
- You can include your kids under your plan or get a separate health cover depending on your individual needs. As the policy chosen for kids will not entitle you for additional benefits, you can even include them in the group cover and claim tax benefits only for your income.
Get exemption for long term capital gains
- Many people are not aware of the best ways to save tax and mistake that they have to pay taxes whenever they earn any money. However, this is not true as you can get tax exemption in many cases and this will help you to save lots of money in the long run.
- Under Section 54, you can claim complete tax exemption for any capital gains made out of long term investment. In this regard, say you had a property for many years and sold them for some profit. In this situation, you will be eligible for tax exemption on the profits and it will not be taxed in any manner.
- Similarly, when you make long term capital gains in the financial markets by selling your investment in stocks and other assets, you can claim similar exemption and this will help you to save lots of money. You will be encouraged to invest more money on long term assets in this manner.
Get tax exemption for charitable donations
- If you are wondering how to choose the best ways to save tax on your donations, you can look forward to donating for the National Relief Funds. In most cases, you can get complete tax exemption for the donations you make towards such funds. This can be a good option when you want to donate lump sum money on some charitable cause and avoid taxes on such expenses.
- Many people choose this option and the exemption is provided under Section 80 G for people donating to registered charitable organizations. Remember that the charitable organizations must be registered with the Government in order to accept funds from public and you should provide proper receipts for your donation.
- The amount of exemption provided may vary slightly depending on the cause you are donating and the organization for which you are donating the money. You can at least claim 50 percent tax exemption in most cases for all the donations.
- The Government is cracking down on illegal donations to charitable organizations and you will not be allowed to make high amount of donation in cash. The maximum amount of donation you can pay through cash is limited at Rs 10000 and anything in excess of this amount has to be done through the bank account. In this way, the tax agency will have proper way to track such transactions and even you will have proper records to prove your donation.
Save taxes through investments
- Some of the best ways to save tax include investing in various government approved funds. However, most of the investment will have some lock in period and you will not be able to remove them before that duration.
- This is suited for salaried individuals and businessmen who are looking forward to saving tax through long term investment. You can choose to go for fixed deposits with banks as this will safeguard your money and also provide you with good returns along with tax benefits. You will be able to get tax exemption till 1.5 lakhs under this option. However, you need to be invested for a minimum duration of five years in order to be eligible for tax exemption.
- You can however invest as much money you want in fixed deposits for any duration of your choice. The only thing is that you will get tax exemption only for the limited amount and when it has completed the minimum duration specified in the Section 80C.
- In the same manner, the money you save through your EPF will be eligible for tax benefits and this is the best ways to save tax for salaried individuals. They can easily save some part of their salary on a regular basis and get immense benefit at a later stage in life.
- It is also a good idea to plan for your retirement when you are earning good money in your early days. In this way, you will not have financial issues later in life and this will allow you to get good pension even after your retirement. The National Pension Scheme provides good returns and you will also get tax benefits when you invest your money in such schemes.
- If you are a salaried individual, you can choose to invest in Public Provident Fund on a regular basis and this will help you later in life. You will be able to use the money whenever you need them in future and this can be reserved for your retired life. This is also eligible for tax benefits and you can get to save money easily in this way.
- You can even choose to invest in the National Savings Certificate for a long duration and get tax benefits for your investment. This can provide good returns in the long run and the entire proceedings from the investment will be tax free when you hold them for a very long duration.
- Most people do not know the best ways to save tax and they think that getting insurance policy will not provide any tax benefits. This will give you amazing tax benefits and you can even invest money in ULIP plans for many years to get this benefit. Apart from providing the required security for your life, you can also get to enjoy tax benefits with such investments.
In this way, there are many legal ways to get the best tax exemption and you can make the best use of such provisions. Always consult your tax consultant before you file taxes and there may be other ways in which you can get some exemption in future.
